Preparing for Appraisal as a Seller
The buyer's lender will have your home appraised and if the home doesn't appraise for the agreed contract price, the lenders will not give the buyers a loan. This insures the lender that if the buyer is unable to make their mortgage payments, the lender takes the home and uses it to pay the loan. For this reason, the lender will want to make sure the amount they lend the buyer is as close to the value, or less, of the home as possible. If the house appraisal is too low, the buyer may submit an amendment to the seller to reduce the sale price, or the buyer may make up the difference with their own money.
Fortunately, there are some things we can do to help avoid a bad appraisal. Most appraisers welcome input from us and we will prepare a thorough package of information about your home to give to the appraiser. This will include data on comparable homes and any improvements you've made that increase the value of your home.
Scheduling the Appraisal
You will have time to prepare for an appraisal as a seller. You will be notified once the appraisal is scheduled; however, we recommend preparing for the appraisal once you have a binding contract with a buyer.
The mortgage lender will order the appraisal once the buyer signs and returns the initial loan disclosures. The contract outlines the exact number of days the lender and buyer must provide an appraisal. The appraiser or appraisal management company will schedule the appraiser’s inspection after the buyer pays for the appraisal. Appraisers gain entry into the home via the lockbox that your REALTOR places on the door.
Inspect Your Property
Inspect your home with an unbiased eye before the appraiser’s visit. Look for anything alarming and address it immediately.
Appraisal inspections are not home inspections. Appraisers do not assess the home’s functionality and working condition; however, they are the lender’s eyes and ears. Appraisers are obligated to report any concerns that may warrant further inspection.
For example, an appraiser may take pictures of cracks in the walls, notate doors that stick, and ultimately recommend a foundation inspection. Address alarming items before they become issues.
Let’s be very clear: we are not suggesting anyone mask known defects. We’re simply recommending that sellers address non-issues to remove the possibility of misinterpretation.
Create an Appraisal Packet
Your REALTOR will create an informational packet for the appraiser since you won’t be in direct contact with the appraiser. Remember, it’s very difficult to fight a low appraisal, so a strong appraisal information package can go a long way in helping a property appraise for contract value.
It’s important that you provide any information about the home and neighborhood that may influence value to your REALTOR. The additional information is helpful and lends itself to a more accurate value assessment.
Providing Comps and Explanations
The appraiser will compare your home to other homes that have recently sold in the neighborhood. These are called “comparable” homes (or “comps”). The appraiser will use the MLS to determine how to determine the appraised value.
Appraisers and in many cases, your REALTOR, doesn’t know all of the backstories behind the neighborhood sales. Inform your REALTOR of distressed sales due to job loss, divorce, death, etc. Provide any information about neighboring houses that may be relevant, such as condition, known defects and improvements.
Don’t let discounted homes lower your appraised value. Appraisers may be able to dismiss those lower comps if other comps are available.
Provide Comps Not in MLS
Provide your REALTOR with any recent sales that were not listed in MLS. Work with your Realtor to determine what information is available to the appraiser. Non-MLS sales are usually not available to the appraiser, and this information can be key in determining value. If you know the buyers or seller, we recommend you attempt to call those current owners (or past sellers) and see if you can get a copy of the Closing Disclosure (CD) so the appraiser can use that comp.
List Your Home Improvements
Provide your REALTOR a list of upgrades, repairs and improvements, including timing, cost and (if available) receipts. This will ensure that the appraiser is aware of all the amenities to the house. Let them consider every feature for the determination of value.
If Your Appraisal Comes in Low
In most cases the buyer will ask to renegotiate a new, lower purchase price that meets the appraised value. However, in a competitive market of multiple offer situation, the buyer may choose to increase their down payment to meet the new loan-to-value down payment minimums or use cash to cover the appraisal gap.
Some lenders can dispute the appraisal; however, it’s 100% based on the lender and appraisal appeals have a very low success rate. Depending on the type of loan, the buyer may choose to switch lenders. The worst case scenario, if the contract stipulates an appraisal contingency, the buyer will have the right to terminate the contract and have their earnest money returned.